Dear Reader, Sovrun recently got in touch with me and asked if he could try a guest post on P3P. After a little back and forth, he crafted the following. Sovrun is a fellow AIE’er, has a ton of WoW gold, and is generally worth listening to. So, without further ado, let’s give him a chance to speak up!
Econ 101: Introduction to the WoW Economy
Hello all, I should really start off by explaining a little about myself prior to moving into the dirt. I have been playing WoW since the launch of Wrath. Yes, I am a Wrath baby. It’s okay. Call me what you want. I don’t have time for participate in the end game much. I guess this is what makes be an altaholic with a professions issue. A friend of mine asked my to take up writing about the WoW economy as a substitute for the typical 12 step program. So….here is step one.
The first step into any venture is to understand the market to see what opportunities exist and help to define your angle and strategy. Well, that’s a load of nothing specific. What does this mean? If you look at the market you will see that it behaves similar to many of the real world markets, but just not the ones that you are likely thinking of You are not going to make headlines because of the latest do-dad that your innovative team of engineers just came up with, no matter how thin you screen is. The WoW economy is a nuts and bolts industry. No really, it’s just like buying nuts, bolts, screws and nails. You are not going to find any cults of fruit that will buy anything that Harrison Jones is offering. You, nor I, have that kind of pull with our “Made by” tags.
So what do I mean by Nails… Nails are your typical bulk items that sell in high volumes, but have no real differentiation. Yes, there may be a nail built by some amazing designer, but most will settle of the less wonderful bulk item. They may be different size or for a specialized use, but they are still basic and no one cares were they come from. Did I just describe the Bag Market? Of course, I did. Items that fit into this category are the types of things that are in high demand with generally low margins. Think Bags, Fortune Cards, Belt Buckles when you put items into the Nails category.
Ok, but Screws? Have you ever bought a screw? Screws are more specialized than nails. Companies that are participating in the Screws Market must create different variations to meet the customer’s fickle demand. Are these descriptions hitting home or what? Yes, you guessed it. The screws market is similar to Gems, Enchants and Glyph. These items sell really well, but you need the breadth of scope to capture the sales. If you only sell one type of Gem, Enchant or Glyph, you can pretty much guarantee that you will not make much in the way of Gold. Even the rare recipes don’t sell as often or have as much profit potential as the group in general.
The Nuts and Bolt market is even further specialized. The main difference is that they are complimentary. This category is made up of item that may be subcomponents, most blues and epic items, recipes and pets. These items may warrant a premium, but sell at a lower rate than the other two categories. Yes, there are many niche items in this area that will do really well, but the risk is also higher than the other categories.
This can’t really just be about renaming groups of items into something you can find at the local hardware store. Again, you are way smart than…well, the small screen staring back at me. Once you understand which segment you are selling to you need to ensure that you are profitable. Add-ons will help understand what items are currently not selling for. But to ensure profitability, I recommend manually setting a minimum threshold that ensures financial growth. Feel free to undercut as much as you want as long as the item is still posted above you costs. Needless to say, companies don’t stay in business long selling everything at a loss. There is no such thing as a loss leader on the Auction House. I don’t want to go into pricing strategies at this time, but stay mindful of your ratio of Price to Cost.
Each segment requires a different strategy to attach.
Nails have high competition, but you don’t have to be to lowest priced supplier on the Auction House to sell. The demand will allow you to have long posting cycles with high volumes. Let’s just call it a low time investment category.
I also put the gathering professions in this category. Herbs, Ore, Cloth, and Leather are also additional examples of Nails. The real difference here is thinking about how these items are used in the professions and by popular add-ons. For instance, Trade Skill Master is gaining momentum for heavy Auction House Users. The TSM Shopping Scan will only consider herbs or ore stacks that can evenly create inks and gems during it’s semi-automated buying cycle. Based on this information alone, it doesn’t make sense to post Ore and Herbs in anything but groups of 5, 10, 15 and 20. Otherwise, you miss the opportunity to sell your raw materials to potential manufacturers.
Screws, on the other hand, have the demand spread throughout the category. These are typically fiercely competitive where only the lowest priced items will sell. My experience with the glyph market is that when you have complete glyph coverage, the 12-hour posting window is way too long. You actually will sell the vast majority of items within the first hour or two. These two characteristics combine to make this a high time investment category. Additionally, this category is ripe for price resetting, but I will cover this more under pricing strategies
Lastly, the Nuts and Bolts category is similar to the Nails in that long posting cycles are typical, but the demand is much lower. In fact, you may be the only item on the AH and not have a single offer.
In my next segment (no pun intended), I will go into pricing strategies. How do I price my items? Do I undercut? By how much? How can two hunters help? You got it. I’ll explain it all next time…. Until then, have fun and make more copper than the next guy.